Sunday, December 11, 2016

The consensus is that the Fed will raise the Fed Funds Rate 25 bps following the FOMC meeting this coming week.

Since the rate hike is expected (and assuming it happens), the focus this month will be on hints about the next move from the wording of the statement, the projections, and Fed Chair Janet Yellen's press conference. My guess is, as far as the impact of fiscal stimulus, the Fed will wait and see what the actual proposals will be.

Here are the September FOMC projections. Since the release of those projections, Q3 GDP was reported at a 3.2% annual rate.

Currently GDP is tracking around 2.6% annualized in Q4. That would put real GDP up 2.0% in Q4 2016 over Q4 2015. 2016 GDP will probably be revised up slightly, but it will be interesting to see if projections for 2017 and 2018 are revised up due to possible fiscal stimulus.

2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October, PCE inflation was up 1.4% from October 2015. With oil prices up year-over-year, PCE inflation has been moving up. It appears inflation will be revised up for 2016, but the key will be if inflation is revised up for 2017 and 2018.